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I don't know if the authors peek in here occasionally, but about the following sentence -- "Monetary independence (MI), which depends on the extent to which domestic interest differs from the foreign interest rate" -- is the interest rates being compared the sovereign domestic borrowing rate with foreign borrowing rate? And how does the weighting scheme, for the "extent" part, work? Thanks, in advance.


16/05/2013 01:22:55

Thanks for your query. The MI index is based on the 91 Treasury Bill rate. The RBI uses a number of monetary policy tools like the repo rate, reverse repo rate, reserve ratio etc, and changes in any of these has an impact on the T Bill rate. For the "extent" part you can take a look at how the MI index has been created in either Aizenman, Chinn and Ito (2010) or Sen Gupta and Sengupta (2013). Abhijit

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Abhijit Sen Gupta , India 16/05/2013 09:31:40

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